PSA-620 Using the Work of an Auditor's Expert

Standards B

Philippine Standard on Auditing 620 (Revised and Redrafted)

USING THE WORK OF AN AUDITOR’S EXPERT

Auditing and Assurance Standards Council

PSA 620 (Revised and Redrafted)

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PHILIPPINE STANDARD ON AUDITING 620

(REVISED AND REDRAFTED)

USING THE WORK OF AN AUDITOR’S EXPERT (Effective for audits of financial statements for periods beginning on or after December 15, 2009)

CONTENTS Paragraph

Introduction

Scope of this PSA....................................................................................................... 1-2

The Auditor’s Responsibility for the Audit Opinion.................................................. 3

Effective Date............................................................................................................. 4

Objectives................................................................................................................. 5

Definitions................................................................................................................. 6

Requirements

Determining the Need for an Auditor’s Expert......................................................... 7

Nature, Timing and Extent of Audit Procedures....................................................... 8

The Competence, Capabilities and Objectivity of the Auditor’s Expert................... 9

Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert....... 10

Agreement with the Auditor’s Expert....................................................................... 11

Evaluating the Adequacy of the Auditor’s Expert’s Work....................................... 12-13

Reference to the Auditor’s Expert in the Auditor’s Report ..................................... 14-15

Application and Other Explanatory Material

Definitions................................................................................................................ A1-A3

Determining the Need for an Auditor’s Expert....................................................... A4-A9

Nature, Timing and Extent of Audit Procedures..................................................... A10-A13

The Competence, Capabilities and Objectivity of the Auditor’s Expert................. A14-A20

Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert...... A21-A22

Agreement with the Auditor’s Expert..................................................................... A23-A31

Evaluating the Adequacy of the Auditor’s Expert’s Work...................................... A32-A40

Reference to the Auditor’s Expert in the Auditor’s Report.................................... A41-A42

Acknowledgment

Appendix: Considerations for Agreement between the Auditor

and an Auditor’s External Expert

Philippine Standard on Auditing (PSA) 620 (Revised and Redrafted), “Using the Work of an

Auditor’s Expert” should be read in conjunction with PSA 200 (Revised and Redrafted),

“Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance

with Philippine Standards on Auditing.”


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Introduction

Scope of this PSA

1. This Philippine Standard on Auditing (PSA) deals with the auditor’s responsibilities

regarding the use of an individual or organization’s work in a field of expertise other

than accounting or auditing, when that work is used to assist the auditor in obtaining

sufficient appropriate audit evidence.

2. This PSA does not deal with:

(a) Situations where the engagement team includes a member with expertise in a

specialized area of accounting or auditing, which is dealt with in PSA 220

(Redrafted);1 or

(b) The auditor’s use of the work of an individual or organization possessing

expertise in a field other than accounting or auditing, whose work in that field

is used by the entity to assist the entity in preparing the financial statements (a

management’s expert), which is dealt with in PSA 500 (Redrafted).2

The Auditor’s Responsibility for the Audit Opinion

3. The auditor has sole responsibility for the audit opinion expressed, and that

responsibility is not reduced by the auditor’s use of the work of an auditor’s expert.

Nonetheless, if the auditor using the work of an auditor’s expert, having followed this

PSA, concludes that the work of that expert is adequate for the auditor’s purposes, the

auditor may accept that expert’s findings or conclusions in the expert’s field as

appropriate audit evidence.

Effective Date

4. This PSA is effective for audits of financial statements for periods beginning on or

after December 15, 2009.

Objectives

5. The objectives of the auditor are:

(a) To determine whether to use the work of an auditor’s expert; and

(b) If using the work of an auditor’s expert, to determine whether that work is

adequate for the auditor’s purposes.

1 PSA 220 (Redrafted), “Quality Control for an Audit of Financial Statements,” paragraph A20.

2 PSA 500 (Redrafted), “Audit Evidence,” paragraphs A34-A48.


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Definitions

6. For purposes of the PSAs, the following terms have the meanings attributed below:

(a) Auditor’s expert – An individual or organization possessing expertise in a

field other than accounting or auditing, whose work in that field is used by the

auditor to assist the auditor in obtaining sufficient appropriate audit evidence.

An auditor’s expert may be either an auditor’s internal expert (who is a

partner3 or staff, including temporary staff, of the auditor’s firm or a network

firm), or an auditor’s external expert. (Ref: Para. A1-A3)

(b) Expertise – Skills, knowledge and experience in a particular field.

(c) Management’s expert – An individual or organization possessing expertise in

a field other than accounting or auditing, whose work in that field is used by

the entity to assist the entity in preparing the financial statements.

Requirements

Determining the Need for an Auditor’s Expert

7. If expertise in a field other than accounting or auditing is necessary to obtain

sufficient appropriate audit evidence, the auditor shall determine whether to use the

work of an auditor’s expert. (Ref: Para. A4-A9)

Nature, Timing and Extent of Audit Procedures

8. The nature, timing and extent of the auditor’s procedures with respect to the

requirements in paragraphs 9-13 of this PSA will vary depending on the

circumstances. In determining the nature, timing and extent of those procedures, the

auditor shall consider matters including: (Ref: Para. A10)

(a) The nature of the matter to which that expert’s work relates;

(b) The risks of material misstatement in the matter to which that expert’s work

relates;

(c) The significance of that expert’s work in the context of the audit;

(d) The auditor’s knowledge of and experience with previous work performed by

that expert; and

(e) Whether that expert is subject to the auditor’s firm’s quality control policies

and procedures. (Ref: Para. A11-A13)

3 “Partner” and “firm” should be read as referring to their public sector equivalents where relevant.


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The Competence, Capabilities and Objectivity of the Auditor’s Expert

9. The auditor shall evaluate whether the auditor’s expert has the necessary competence,

capabilities and objectivity for the auditor’s purposes. In the case of an auditor’s

external expert, the evaluation of objectivity shall include inquiry regarding interests

and relationships that may create a threat to that expert’s objectivity. (Ref: Para. A14-A20)

Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert

10. The auditor shall obtain a sufficient understanding of the field of expertise of the

auditor’s expert to enable the auditor to: (Ref: Para. A21-A22)

(a) Determine the nature, scope and objectives of that expert’s work for the

auditor’s purposes; and

(b) Evaluate the adequacy of that work for the auditor’s purposes.

Agreement with the Auditor’s Expert

11. The auditor shall agree, in writing when appropriate, on the following matters with

the auditor’s expert: (Ref: Para. A23-A26)

(a) The nature, scope and objectives of that expert’s work; (Ref: Para. A27)

(b) The respective roles and responsibilities of the auditor and that expert; (Ref: Para. A28-A29)

(c) The nature, timing and extent of communication between the auditor and that

expert, including the form of any report to be provided by that expert; and (Ref: Para. A30)

(d) The need for the auditor’s expert to observe confidentiality requirements. (Ref: Para. A31)

Evaluating the Adequacy of the Auditor’s Expert’s Work

12. The auditor shall evaluate the adequacy of the auditor’s expert’s work for the

auditor’s purposes, including: (Ref: Para. A32)

(a) The relevance and reasonableness of that expert’s findings or conclusions, and

their consistency with other audit evidence; (Ref: Para. A33-A34)

(b) If that expert’s work involves use of significant assumptions and methods, the

relevance and reasonableness of those assumptions and methods in the

circumstances; and (Ref: Para. A35-A37)

(c) If that expert’s work involves the use of source data that is significant to that

expert’s work, the relevance, completeness, and accuracy of that source data. (Ref: Para. A38-A39)


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13. If the auditor determines that the work of the auditor’s expert is not adequate for the

auditor’s purposes, the auditor shall: (Ref: Para. A40)

(a) Agree with that expert on the nature and extent of further work to be

performed by that expert; or

(b) Perform further audit procedures appropriate to the circumstances.

Reference to the Auditor’s Expert in the Auditor’s Report

14. The auditor shall not refer to the work of an auditor’s expert in an auditor’s report

containing an unmodified opinion unless required by law or regulation to do so. If

such reference is required by law or regulation, the auditor shall indicate in the

auditor’s report that the reference does not reduce the auditor’s responsibility for

the audit opinion. (Ref: Para. A41)

15. If the auditor makes reference to the work of an auditor’s expert in the auditor’s

report because such reference is relevant to an understanding of a modification to the

auditor’s opinion, the auditor shall indicate in the auditor’s report that such reference

does not reduce the auditor’s responsibility for that opinion. (Ref: Para. A42)

***

Application and Other Explanatory Material

Definitions

Auditor’s Expert (Ref: Para. 6(a))

A1. Expertise in a field other than accounting or auditing may include expertise in relation

to such matters as:

• The valuation of complex financial instruments, land and buildings, plant and

machinery, jewelry, works of art, antiques, intangible assets, assets acquired and

liabilities assumed in business combinations and assets that may have been

impaired.

• The actuarial calculation of liabilities associated with insurance contracts or

employee benefit plans.

• The estimation of oil and gas reserves.

• The valuation of environmental liabilities, and site clean-up costs.

• The interpretation of contracts, laws and regulations.

• The analysis of complex or unusual tax compliance issues.

A2. In many cases, distinguishing between expertise in accounting or auditing, and

expertise in another field, will be straightforward, even where this involves a

specialized area of accounting or auditing. For example, an individual with expertise

in applying methods of accounting for deferred income tax can often be easily

distinguished from an expert in taxation law. The former is not an expert for the

purposes of this PSA as this constitutes accounting expertise; the latter is an expert for

the purposes of this PSA as this constitutes legal expertise. Similar distinctions may


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also be able to be made in other areas, for example, between expertise in methods of

accounting for financial instruments, and expertise in complex modeling for the

purpose of valuing financial instruments. In some cases, however, particularly those

involving an emerging area of accounting or auditing expertise, distinguishing

between specialized areas of accounting or auditing, and expertise in another field,

will be a matter of professional judgment. Applicable professional rules and standards

regarding education and competency requirements for accountants and auditors may

assist the auditor in exercising that judgment.4

A3. It is necessary to apply judgment when considering how the requirements of this PSA

are affected by the fact that an auditor’s expert may be either an individual or an

organization. For example, when evaluating the competence, capabilities and

objectivity of an auditor’s expert, it may be that the expert is an organization the

auditor has previously used, but the auditor has no prior experience of the individual

expert assigned by the organization for the particular engagement; or it may be the

reverse, that is, the auditor may be familiar with the work of an individual expert but

not with the organization that expert has joined. In either case, both the personal

attributes of the individual and the managerial attributes of the organization (such as

systems of quality control the organization implements) may be relevant to the

auditor’s evaluation.

Determining the Need for an Auditor’s Expert (Ref: Para. 7)

A4. An auditor’s expert may be needed to assist the auditor in one or more of the

following:

• Obtaining an understanding of the entity and its environment, including its

internal control.

• Identifying and assessing the risks of material misstatement.

• Determining and implementing overall responses to assessed risks at the financial

statement level.

• Designing and performing further audit procedures to respond to assessed risks at

the assertion level, comprising tests of controls or substantive procedures.

• Evaluating the sufficiency and appropriateness of audit evidence obtained in

forming an opinion on the financial statements.

A5. The risks of material misstatement may increase when expertise in a field other than

accounting is needed for management to prepare the financial statements, for

example, because this may indicate some complexity, or because management may

not possess knowledge of the field of expertise. If in preparing the financial

statements management does not possess the necessary expertise, a management’s

expert may be used in addressing those risks. Relevant controls, including controls

that relate to the work of a management’s expert, if any, may also reduce the risks of

material misstatement.

A6. If the preparation of the financial statements involves the use of expertise in a field

other than accounting, the auditor, who is skilled in accounting and auditing, may not

4 For example, IFAC International Education Standard 8, “Competence Requirements for Audit

Professionals” may be of assistance.


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possess the necessary expertise to audit those financial statements. The engagement

partner is required to be satisfied that the engagement team, and any auditor’s experts

who are not part of the engagement team, collectively have the appropriate

competence and capabilities to perform the audit engagement.5. Further, the auditor is

required to ascertain the nature, timing and extent of resources necessary to perform

the engagement.6. The auditor’s determination of whether to use the work of an

auditor’s expert, and if so when and to what extent, assists the auditor in meeting

these requirements. As the audit progresses, or as circumstances change, the auditor

may need to revise earlier decisions about using the work of an auditor’s expert.

A7. An auditor who is not an expert in a relevant field other than accounting or auditing

may nevertheless be able to obtain a sufficient understanding of that field to perform

the audit without an auditor’s expert. This understanding may be obtained through,

for example:

• Experience in auditing entities that require such expertise in the preparation of

their financial statements.

• Education or professional development in the particular field. This may include

formal courses, or discussion with individuals possessing expertise in the relevant

field for the purpose of enhancing the auditor’s own capacity to deal with matters

in that field. Such discussion differs from consultation with an auditor’s expert

regarding a specific set of circumstances encountered on the engagement where

that expert is given all the relevant facts that will enable the expert to provide

informed advice about the particular matter.7

• Discussion with auditors who have performed similar engagements.

A8. In other cases, however, the auditor may determine that it is necessary, or may

choose, to use an auditor’s expert to assist in obtaining sufficient appropriate audit

evidence. Considerations when deciding whether to use an auditor’s expert may

include:

• Whether management has used a management’s expert in preparing the financial

statements (see paragraph A9).

• The nature and significance of the matter, including its complexity.

• The risks of material misstatement in the matter.

• The expected nature of procedures to respond to identified risks, including the

auditor’s knowledge of and experience with the work of experts in relation to

such matters; and the availability of alternative sources of audit evidence.

A9. When management has used a management’s expert in preparing the financial

statements, the auditor’s decision on whether to use an auditor’s expert may also be

influenced by such factors as:

• The nature, scope and objectives of the management’s expert’s work.

5 PSA 220 (Redrafted), paragraph 14.

6 PSA 300 (Redrafted), “Planning an Audit of Financial Statements,” paragraph 7(e).

7 PSA 220 (Redrafted), paragraph A21.


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• Whether the management’s expert is employed by the entity, or is a party engaged

by it to provide relevant services.

• The extent to which management can exercise control or influence over the work

of the management’s expert.

• The management’s expert’s competence and capabilities.

• Whether the management’s expert is subject to technical performance standards

or other professional or industry requirements

• Any controls within the entity over the management’s expert’s work.

PSA 500 (Redrafted)8 includes requirements and guidance regarding the effect of the

competence, capabilities and objectivity of management’s experts on the reliability of

audit evidence.

Nature, Timing and Extent of Audit Procedures (Ref: Para. 8)

A10. The nature, timing and extent of audit procedures with respect to the requirements in

paragraphs 9-13 of this PSA will vary depending on the circumstances. For example,

the following factors may suggest the need for different or more extensive procedures

than would otherwise be the case:

• The work of the auditor’s expert relates to a significant matter that involves

subjective and complex judgments.

• The auditor has not previously used the work of the auditor’s expert, and has no

prior knowledge of that expert’s competence, capabilities and objectivity.

• The auditor’s expert is performing procedures that are integral to the audit, rather

than being consulted to provide advice on an individual matter.

• The expert is an auditor’s external expert and is not, therefore, subject to the

firm’s quality control policies and procedures.

The Auditor’s Firm’s Quality Control Policies and Procedures (Ref: Para. 8(e))

A11. An auditor’s internal expert may be a partner or staff, including temporary staff, of

the auditor’s firm, and therefore subject to the quality control policies and procedures

of that firm in accordance with PSQC 1 (Redrafted).9 Alternatively, an auditor’s

internal expert may be a partner or staff, including temporary staff, of a network firm,

which may share common quality control policies and procedures with the auditor’s

firm.

A12. An auditor’s external expert is not a member of the engagement team and is not

subject to quality control policies and procedures in accordance with PSQC 1

(Redrafted).10 In some jurisdictions, however, law or regulation may require that an

auditor’s external expert be treated as a member of the engagement team, and may

8 PSA 500 (Redrafted), paragraphs 8, and A34-A48.

9 PSQC 1 (Redrafted), “Quality Control for Firms that Perform Audits and Reviews of Financial

Statements, and Other Assurance and Related Services Engagements,” paragraph 12(f).

10 PSQC 1 (Redrafted), paragraph 12(f).


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therefore be subject to relevant ethical and other professional requirements, including

those relating to independence, as determined by that law or regulation.11

A13. Engagement teams are entitled to rely on the firm’s system of quality control, unless

information provided by the firm or other parties suggests otherwise.12 The extent of

that reliance will vary with the circumstances, and may affect the nature, timing and

extent of the auditor’s procedures with respect to such matters as:

• Competence and capabilities, through recruitment and training programs.

• Objectivity. Auditor’s internal experts are subject to relevant ethical requirements,

including those pertaining to independence.

• The auditor’s evaluation of the adequacy of the auditor’s expert’s work. For

example, the firm’s training programs may provide auditor’s internal experts with

an appropriate understanding of the interrelationship of their expertise with the

audit process. Reliance on such training and other firm processes, such as

protocols for scoping the work of auditor’s internal experts, may affect the nature,

timing and extent of the auditor’s procedures to evaluate the adequacy of the

auditor’s expert’s work.

• Adherence to regulatory and legal requirements, through monitoring processes.

• Agreement with the auditor’s expert.

Such reliance does not reduce the auditor’s responsibility to meet the requirements of

this PSA.

The Competence, Capabilities and Objectivity of the Auditor’s Expert (Ref: Para. 9)

A14. The competence, capabilities and objectivity of an auditor’s expert are factors that

significantly affect whether the work of the auditor’s expert will be adequate for the

auditor’s purposes. Competence relates to the nature and level of expertise of the

auditor’s expert. Capability relates to the ability of the auditor’s expert to exercise that

competence in the circumstances of the engagement. Factors that influence capability

may include, for example, geographic location, and the availability of time and

resources. Objectivity relates to the possible effects that bias, conflict of interest, or

the influence of others may have on the professional or business judgment of the

auditor’s expert.

A15. Information regarding the competence, capabilities and objectivity of an auditor’s

expert may come from a variety of sources, such as:

• Personal experience with previous work of that expert.

• Discussions with that expert.

• Discussions with other auditors or others who are familiar with that expert’s

work.

11 Relevant ethical requirements ordinarily comprise Parts A and B of the Philippine Code of Ethics for

Professional Accountants (:Philippine Ethics Code) related to an audit of financial statements together

with national requirements that are more restrictive.

12 PSA 220 (Redrafted), paragraph 4.


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• Knowledge of that expert’s qualifications, membership of a professional body or

industry association, license to practice, or other forms of external recognition.

• Published papers or books written by that expert.

• The auditor’s firm’s quality control policies and procedures (see paragraphs A11-

A13)

A16. Matters relevant to evaluating the competence, capabilities and objectivity of the

auditor’s expert include whether that expert’s work is subject to technical

performance standards or other professional or industry requirements, for example,

ethical standards and other membership requirements of a professional body or

industry association, accreditation standards of a licensing body, or requirements

imposed by law or regulation.

A17. Other matters that may be relevant include:

• The relevance of the auditor’s expert’s competence to the matter for which that

expert’s work will be used, including any areas of specialty within that expert’s

field. For example, a particular actuary may specialize in property and casualty

insurance, but have limited expertise regarding pension calculations.

• The auditor’s expert’s competence with respect to relevant accounting and

auditing requirements, for example, knowledge of assumptions and methods,

including models where applicable, that are consistent with the applicable

financial reporting framework.

• Whether unexpected events, changes in conditions, or the audit evidence obtained

from the results of audit procedures indicate that it may be necessary to reconsider

the initial evaluation of the competence, capabilities and objectivity of the

auditor’s expert as the audit progresses.

A18. A broad range of circumstances may threaten objectivity, for example, self-interest

threats, advocacy threats, familiarity threats, self-review threats, and intimidation

threats. Safeguards may eliminate or reduce such threats, and may be created by

external structures (for example, the auditor’s expert’s profession, legislation or

regulation), or by the auditor’s expert’s work environment (for example, quality

control policies and procedures). There may also be safeguards specific to the audit

engagement.

A19. The evaluation of the significance of threats to objectivity and of whether there is a

need for safeguards may depend upon the role of the auditor’s expert and the

significance of the expert’s work in the context of the audit. There may be some

circumstances in which safeguards cannot reduce threats to an acceptable level, for

example, if a proposed auditor’s expert is an individual who has played a significant

role in preparing the information that is being audited, that is, if the auditor’s expert is

a management’s expert.

A20. When evaluating the objectivity of an auditor’s external expert, it may be relevant to:

(a) Inquire of the entity about any known interests or relationships that the entity

has with the auditor’s external expert that may affect that expert’s objectivity.

(b) Discuss with that expert any applicable safeguards, including any professional

requirements that apply to that expert; and evaluate whether the safeguards


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are adequate to reduce threats to an acceptable level. Interests and

relationships that may be relevant to discuss with the auditor’s expert include:

• Financial interests.

• Business and personal relationships.

• Provision of other services by the expert, including by the organization in

the case of an external expert that is an organization.

In some cases, it may also be appropriate for the auditor to obtain a written

representation from the auditor’s external expert about any interests or relationships

with the entity of which that expert is aware.

Obtaining an Understanding of the Field of Expertise of the Auditor’s Expert (Ref: Para. 10)

A21. The auditor may obtain an understanding of the auditor’s expert’s field of expertise

through the means described in paragraph A7, or through discussion with that expert.

A22. Aspects of the auditor’s expert’s field relevant to the auditor’s understanding may

include:

• Whether that expert’s field has areas of specialty within it that are relevant to the

audit (see paragraph A17).

• Whether any professional or other standards, and regulatory or legal requirements

apply.

• What assumptions and methods, including models where applicable, are used by

the auditor’s expert, and whether they are generally accepted within that expert’s

field and appropriate for financial reporting purposes.

• The nature of internal and external data or information the auditor’s expert uses.

Agreement with the Auditor’s Expert (Ref: Para. 11)

A23. The nature, scope and objectives of the auditor’s expert’s work may vary

considerably with the circumstances, as may the respective roles and responsibilities

of the auditor and the auditor’s expert, and the nature, timing and extent of

communication between the auditor and the auditor’s expert. It is therefore required

that these matters are agreed between the auditor and the auditor’s expert regardless

of whether the expert is an auditor’s external expert or an auditor’s internal expert.

A24. The matters noted in paragraph 8 may affect the level of detail and formality of the

agreement between the auditor and the auditor’s expert, including whether it is

appropriate that the agreement be in writing. For example, the following factors may

suggest the need for more a detailed agreement than would otherwise be the case, or

for the agreement to be set out in writing:

• The auditor’s expert will have access to sensitive or confidential entity

information.

• The respective roles or responsibilities of the auditor and the auditor’s expert are

different from those normally expected.

• Multi-jurisdictional legal or regulatory requirements apply.


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• The matter to which the auditor’s expert’s work relates is highly complex.

• The auditor has not previously used work performed by that expert.

• The greater the extent of the auditor’s expert’s work, and its significance in the

context of the audit.

A25. The agreement between the auditor and an auditor’s external expert is often in the

form of an engagement letter. The Appendix lists matters that the auditor may

consider for inclusion in such an engagement letter, or in any other form of agreement

with an auditor’s external expert.

A26. When there is no written agreement between the auditor and the auditor’s expert,

evidence of the agreement may be included in, for example:

• Planning memoranda, or related working papers such as the audit program.

• The policies and procedures of the auditor’s firm. In the case of an auditor’s

internal expert, the established policies and procedures to which that expert is

subject may include particular policies and procedures in relation to that expert’s

work. The extent of documentation in the auditor’s working papers depends on

the nature of such policies and procedures. For example, no documentation may

be required in the auditor’s working papers if the auditor’s firm has detailed

protocols covering the circumstances in which the work of such an expert is used.

Nature, Scope and Objectives of Work (Ref: Para. 11(a))

A27. It may often be relevant when agreeing on the nature, scope and objectives of the

auditor’s expert’s work to include discussion of any relevant technical performance

standards or other professional or industry requirements that the expert will follow.

Respective Roles and Responsibilities (Ref: Para. 11(b))

A28. Agreement on the respective roles and responsibilities of the auditor and the auditor’s

expert may include:

• Whether the auditor or the auditor’s expert will perform detailed testing of source

data.

• Consent for the auditor to discuss the auditor’s expert’s findings or conclusions

with the entity and others, and to include details of that expert’s findings or

conclusions in a modified auditor’s report, if necessary (see paragraph A42).

• Any agreement to inform the auditor’s expert of the auditor’s conclusions

concerning that expert’s work.

Working Papers

A29. Agreement on the respective roles and responsibilities of the auditor and the auditor’s

expert may also include agreement about access to, and retention of, each other’s

working papers. When the auditor’s expert is a member of the engagement team, that

expert’s working papers form part of the audit documentation. Subject to any

agreement to the contrary, auditor’s external experts’ working papers are their own

and do not form part of the audit documentation.


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Communication (Ref: Para. 11(c))

A30. Effective two-way communication facilitates the proper integration of the nature,

timing and extent of the auditor’s expert’s procedures with other work on the audit,

and appropriate modification of the auditor’s expert’s objectives during the course of

the audit. For example, when the work of the auditor’s expert relates to the auditor’s

conclusions regarding a significant risk, both a formal written report at the conclusion

of that expert’s work, and oral reports as the work progresses, may be appropriate.

Identification of specific partners or staff who will liaise with the auditor’s expert, and

procedures for communication between that expert and the entity, assists timely and

effective communication, particularly on larger engagements.

Confidentiality (Ref: Para. 11(d))

A31. It is necessary for the confidentiality provisions of relevant ethical requirements that

apply to the auditor also to apply to the auditor’s expert. Additional requirements may

be imposed by law or regulation. The entity may also have requested that specific

confidentiality provisions be agreed with auditor’s external experts.

Evaluating the Adequacy of the Auditor’s Expert’s Work (Ref: Para. 12)

A32. The auditor’s evaluation of the auditor’s expert’s competence, capabilities and

objectivity, the auditor’s familiarity with the auditor’s expert’s field of expertise, and

the nature of the work performed by the auditor’s expert affect the nature, timing and

extent of audit procedures to evaluate the adequacy of that expert’s work for the

auditor’s purposes.

The Findings and Conclusions of the Auditor’s Expert (Ref: Para. 12(a))

A33. Specific procedures to evaluate the adequacy of the auditor’s expert’s work for the

auditor’s purposes may include:

• Inquiries of the auditor’s expert.

• Reviewing the auditor’s expert’s working papers and reports.

• Corroborative procedures, such as:

o Observing the auditor’s expert’s work;

o Examining published data, such as statistical reports from reputable,

authoritative sources;

o Confirming relevant matters with third parties;

o Performing detailed analytical procedures; and

o Reperforming calculations.

• Discussion with another expert with relevant expertise when, for example, the

findings or conclusions of the auditor’s expert are not consistent with other audit

evidence.

• Discussing the auditor’s expert’s report with management.


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A34. Relevant factors when evaluating the relevance and reasonableness of the findings or

conclusions of the auditor’s expert, whether in a report or other form, may include

whether they are:

• Presented in a manner that is consistent with any standards of the auditor’s

expert’s profession or industry;

• Clearly expressed, including reference to the objectives agreed with the auditor,

the scope of the work performed and standards applied;

• Based on an appropriate period and take into account subsequent events, where

relevant;

• Subject to any reservation, limitation or restriction on use, and if so, whether this

has implications for the auditor; and

• Based on appropriate consideration of errors or deviations encountered by the

auditor’s expert.

Assumptions, Methods and Source Data

Assumptions and Methods (Ref: Para. 12(b))

A35. When the auditor’s expert’s work is to evaluate underlying assumptions and methods,

including models where applicable, used by management in developing an accounting

estimate, the auditor’s procedures are likely to be primarily directed to evaluating

whether the auditor’s expert has adequately reviewed those assumptions and methods.

When the auditor’s expert’s work is to develop an auditor’s point estimate or an

auditor’s range for comparison with management’s point estimate, the auditor’s

procedures may be primarily directed to evaluating the assumptions and methods,

including models where appropriate, used by the auditor’s expert.

A36. PSA 540 (Revised and Redrafted)13 discusses the assumptions and methods used by

management in making accounting estimates, including the use in some cases of

highly specialized, entity-developed models. Although that discussion is written in the

context of the auditor obtaining sufficient appropriate audit evidence regarding

management’s assumptions and methods, it may also assist the auditor when

evaluating an auditor’s expert’s assumptions and methods.

A37. When an auditor’s expert’s work involves the use of significant assumptions and

methods, factors relevant to the auditor’s evaluation of those assumptions and

methods include whether they are:

• Generally accepted within the auditor’s expert’s field;

• Consistent with the requirements of the applicable financial reporting framework;

• Dependent on the use of specialized models; and

• Consistent with those of management, and if not, the reason for, and effects of,

the differences.

13 PSA 540 (Revised and Redrafted), “Auditing Accounting Estimates, Including Fair Value Accounting

Estimates, and Related Disclosures,” paragraphs 8, 13 and 15.


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Source Data Used by the Auditor’s Expert (Ref: Para. 12(c))

A38. When an auditor’s expert’s work involves the use of source data that is significant to

that expert’s work, procedures such as the following may be used to test that data:

• Verifying the origin of the data, including obtaining an understanding of,

and where applicable testing, the internal controls over the data and,

where relevant, its transmission to the expert.

• Reviewing the data for completeness and internal consistency.

A39. In many cases, the auditor may test source data. However, in other cases, when the

nature of the source data used by an auditor’s expert is highly technical in relation to

the expert’s field, that expert may test the source data. If the auditor’s expert has

tested the source data, inquiry of that expert by the auditor, or supervision or review

of that expert’s tests may be an appropriate way for the auditor to evaluate that data’s

relevance, completeness, and accuracy.

Inadequate Work (Ref: Para. 13)

A40. If the auditor concludes that the work of the auditor’s expert is not adequate for the

auditor’s purposes and the auditor cannot resolve the matter through the additional

audit procedures required by paragraph 13, which may involve further work being

performed by both the expert and the auditor, or include employing or engaging

another expert, it may be necessary to express a modified opinion in the auditor’s

report in accordance with PSA 705 (Revised and Redrafted) because the auditor has

not obtained sufficient appropriate audit evidence.14

Reference to the Auditor’s Expert in the Auditor’s Report (Ref: Para. 14-15)

A41. In some cases, law or regulation may require a reference to the work of an auditor’s

expert, for example, for the purpose of transparency in the public sector.

A42. It may be appropriate in some circumstances to refer to the auditor’s expert in an

auditor’s report containing a modified opinion, to explain the nature of the

modification. In such circumstances, the auditor may need the permission of the

auditor’s expert before making such a reference.

Acknowledgment

This PSA is based on International Standard on Auditing 620 (Revised and Redrafted),

“Using the Work of an Auditor’s Expert” issued by the International Auditing and

Assurance Standards Board.

There are no significant differences between this PSA 620 (Revised and Redrafted) and

ISA 620 (Revised and Redrafted).

14 PSA 705 (Revised and Redrafted), “Modifications to the Opinion in the Independent Auditor’s Report,”

paragraph 6(b).


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Appendix (Ref: Para. A25)

Considerations for Agreement between the Auditor and an Auditor’s

External Expert

This Appendix lists matters that the auditor may consider for inclusion in any agreement with

an auditor’s external expert. The following list is illustrative and is not exhaustive; it is

intended only to be a guide that may be used in conjunction with the considerations outlined

in this PSA. Whether to include particular matters in the agreement depends on the

circumstances of the engagement. The list may also be of assistance in considering the

matters to be included in an agreement with an auditor’s internal expert.

Nature, Scope and Objectives of the Auditor’s External Expert’s Work

• The nature and scope of the procedures to be performed by the auditor’s external expert.

• The objectives of the auditor’s external expert’s work in the context of materiality and

risk considerations concerning the matter to which the auditor’s external expert’s work

relates, and, when relevant, the applicable financial reporting framework.

• Any relevant technical performance standards or other professional or industry

requirements the auditor’s external expert will follow.

• The assumptions and methods, including models where applicable, the auditor’s external

expert will use, and their authority.

• The effective date of, or when applicable the testing period for, the subject matter of the

auditor’s external expert’s work, and requirements regarding subsequent events.

The Respective Roles and Responsibilities of the Auditor and the Auditor’s External

Expert

• Relevant auditing and accounting standards, and relevant regulatory or legal

requirements.

• The auditor’s external expert’s consent to the auditor’s intended use of that expert’s

report, including any reference to it, or disclosure of it, to others, for example reference to

it in a modified auditor’s report, if necessary, or disclosure of it to management or an

audit committee.

• The nature and extent of the auditor’s review of the auditor’s external expert’s work.

• Whether the auditor or the auditor’s external expert will test source data.

• The auditor’s external expert’s access to the entity’s records, files, personnel and to

experts engaged by the entity.

• Procedures for communication between the auditor’s external expert and the entity.

• The auditor’s and the auditor’s external expert’s access to each other’s working papers.

• Ownership and control of working papers during and after the engagement, including any

file retention requirements.

• The auditor’s external expert’s responsibility to perform work with due skill and care.

• The auditor’s external expert’s competence and capability to perform the work.


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• The expectation that the auditor’s external expert will use all knowledge that expert has

that is relevant to the audit or, if not, will inform the auditor.

• Any restriction on the auditor’s external expert’s association with the auditor’s report.

• Any agreement to inform the auditor’s external expert of the auditor’s conclusions

concerning that expert’s work

Communications and Reporting

• Methods and frequency of communications, including:

o How the auditor’s external expert’s findings or conclusions will be reported (written

report, oral report, ongoing input to the engagement team, etc.).

o Identification of specific persons within the engagement team who will liaise with the

auditor’s external expert.

• When the auditor’s external expert will complete the work and report findings or

conclusions to the auditor.

• The auditor’s external expert’s responsibility to communicate promptly any potential

delay in completing the work, and any potential reservation or limitation on that expert’s

findings or conclusions.

• The auditor’s external expert’s responsibility to communicate promptly instances in

which the entity restricts that expert’s access to records, files, personnel or experts

engaged by the entity.

• The auditor’s external expert’s responsibility to communicate to the auditor all

information that expert believes may be relevant to the audit, including any changes in

circumstances previously communicated.

• The auditor’s external expert’s responsibility to communicate circumstances that may

create threats to that expert’s objectivity, and any relevant safeguards that may eliminate

or reduce such threats to an acceptable level.

Confidentiality

• The need for the auditor’s expert to observe confidentiality requirements, including:

o The confidentiality provisions of relevant ethical requirements that apply to the

auditor.

o Additional requirements that may be imposed by law or regulation, if any.

o Specific confidentiality provisions requested by the entity, if any.


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This PSA 620 (Revised and Redrafted), “Using the Work of an Auditor’s Expert,” was

unanimously approved for adoption on February 9, 2009 by the members of the Auditing

and Assurance Standards Council.

Benjamin R. Punongbayan, Chairman

Felicidad A. Abad Antonio P. Acyatan

Erwin Vincent G. Alcala Froilan G. Ampil

David L. Balangue Ma. Gracia F. Casals-Diaz

Eliseo A. Fernandez Judith V. Lopez

Jaime P. Naranjo Ma. Cecilia F. Ortiz

Nestorio C. Roraldo Joaquin P. Tolentino

Jaime E. Ysmael

Documents

PSA-620 Using the Work of an Auditor's Expert